Marsh forecasts rising rates for loss hit EMEA risks

Insurance rates for businesses with exposure to natural catastrophe risk and supply chain perils are expected to continue to rise in 2012 across Europe, the Middle East and Africa (EMEA), according to a report published yesterday by broker Marsh.

Martin South

Big catastrophe losses and reduced investment returns prompted many insurers to seek rate increases in 2011, Marsh said in its Navigating the Risk and Insurance Landscape: Europe, Middle East and Africa Insurance Market Report 2012.

The broker said that it expects rate reductions for property risks to become less frequent in 2012 as underwriters continue to push for rises or restrict limits on accounts with significant losses or catastrophe exposures. However, companies with favourable claims records, robust data and little catastrophe exposure may still be able to secure reductions at renewal in both property and liability classes of business, added Marsh.

The broker also stated that the motor insurance market will remain challenging in many European countries in 2012 because of insurers’ continued concerns over high loss ratios. In the Middle East, where competition had led to decreases of up to 30%, motor rates are expected to stabilise.

“Insurers are scrutinising renewals more closely than at any time in the last decade,” commented Martin South, recently named CEO of Marsh Europe (see last week’s newsletter).

“While rates are generally expected to remain stable across Europe for the first half of 2012, the future implementation of Solvency II and other market factors may increase pressure from insurers to increase rates,” he added.

Mr South said that Marsh’s advice to clients is to focus on deepening relationships with their existing insurers, providing them with strong data and clear evidence of their risk management and mitigation strategies. “By strongly aligning their insurance programme to their particular circumstances, they will be better placed to manage a market change, whenever it occurs,” he said.

Major findings of Marsh’s report include:

Trends in financial and professional lines of business are inconsistent across EMEA. Rates have continued to decline for middle market business as underwriters perceive it as a ‘better risk’. Larger financial institutions have been unable to achieve further rate reductions, amid insurer concerns about the sector’s exposure to the eurozone crisis and ongoing claims.

Competition still exists for trade credit business, although insurers expect rates to harden in 2012. Underwriters are becoming more cautious and are reviewing cover levels, especially in markets such as Greece and Italy. Insurers believe that they are better prepared to handle a second financial crisis, as they now have better financial information and more sophisticated techniques to assess the probability of default.

The Arab Spring has had a profound impact on benefits decision-makers throughout the Middle East and northern Africa. Political violence is now ranked among the most serious employee risks. In the Middle East, many countries experienced medical inflation of 10–15% last year. In Europe, medical plan costs rose as national health systems were cut, claims inflation continued, and insurers sought higher margins.